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MarketScreener Homepage  >  Equities  >  Nyse  >  Phillips 66 Partners LP    PSXP

PHILLIPS 66 PARTNERS LP

(PSXP)
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PHILLIPS 66 PARTNERS LP : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/21/2020 | 03:30pm EDT
Management's Discussion and Analysis is the Partnership's analysis of its
financial performance, financial condition, and of significant trends that may
affect future performance. It should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K. It contains forward-looking statements including,
without limitation, statements relating to the Partnership's plans, strategies,
objectives, expectations and intentions. The words "anticipate," "estimate,"
"believe," "budget," "continue," "could," "intend," "may," "plan," "potential,"
"predict," "seek," "should," "will," "would," "expect," "objective,"
"projection," "forecast," "goal," "guidance," "outlook," "effort," "target" and
similar expressions identify forward-looking statements. The Partnership does
not undertake to update, revise or correct any of the forward-looking
information unless required to do so under the federal securities laws. Readers
are cautioned that such forward-looking statements should be read in conjunction
with the Partnership's disclosures under the heading: "CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS."


BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW


Partnership Overview
We are a Delaware limited partnership formed in 2013 by Phillips 66 Company and
Phillips 66 Partners GP LLC (our General Partner), both wholly owned
subsidiaries of Phillips 66. On August 1, 2015, Phillips 66 Company transferred
all of its limited partner interest in us and its 100% interest in Phillips 66
Partners GP LLC to its wholly owned subsidiary, Phillips 66 Project Development
Inc. (Phillips 66 PDI). On August 1, 2019, all of the outstanding incentive
distribution rights (IDRs) held by our General Partner were eliminated and its
general partner interest in us was converted to a noneconomic interest in
exchange for common units. We are a growth-oriented master limited partnership
formed to own, operate, develop and acquire primarily fee-based midstream
assets. Our common units trade on the New York Stock Exchange under the symbol
PSXP.

Basis of Presentation
We have acquired assets from Phillips 66 that were considered transfers of
businesses between entities under common control. This required the transactions
to be accounted for as if the transfers had occurred at the beginning of the
period of transfer, with prior periods retrospectively adjusted to furnish
comparative information. We refer to these pre-acquisition operations as those
of our "Predecessors."

See the "Basis of Presentation" section of Note 1-Business and Basis of Presentation, in the Notes to Consolidated Financial Statements, for additional information on the content and comparability of our historical financial statements.


Executive Overview
Net income attributable to the Partnership was $923 million in 2019. We
generated cash from operations of $1,016 million and raised net proceeds of $641
million through debt and equity financings. This cash was primarily used to fund
our capital expenditures and make quarterly cash distributions to our
unitholders and General Partner. Additionally, $423 million of our capital
expenditures were funded by certain joint venture partners. As of December 31,
2019, we had cash and cash equivalents of $286 million, total debt of $3,516
million, and unused capacity under our revolving credit facility of $749
million.

How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our
performance, including: (1) volumes handled; (2) operating and maintenance
expenses; (3) net income (loss) before net interest expense, income taxes,
depreciation and amortization (EBITDA); (4) adjusted EBITDA; and (5)
distributable cash flow.


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Volumes Handled
The amount of revenue we generate primarily depends on the volumes of crude oil,
refined petroleum products and natural gas liquids (NGL) that we handle in our
pipeline, terminal, rail rack, processing, storage and fractionator systems. In
addition, our equity affiliates generate revenue from transporting and
terminaling crude oil, refined petroleum products and NGL. These volumes are
primarily affected by the supply of, and demand for, crude oil, refined
petroleum products and NGL in the markets served directly or indirectly by our
assets, as well as the operational status of the refineries served by our
assets. Phillips 66 has committed to minimum throughput volumes under many of
our commercial agreements.

Operating and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by
effectively managing operating and maintenance expenses. These expenses
primarily consist of labor expenses (including contractor services), utility
costs, and repair and maintenance expenses. Operating and maintenance expenses
generally remain relatively stable across broad ranges of throughput volumes but
can fluctuate from period to period depending on the mix of activities,
particularly maintenance activities, performed during the period. Although we
seek to manage our maintenance expenditures on our facilities to avoid
significant variability in our quarterly cash flows, we balance this approach
with our high standards of safety and environmental stewardship, such that
critical maintenance is regularly performed.

Our operating and maintenance expenses are also affected by volumetric
gains/losses resulting from variances in meter readings and other measurement
methods, as well as volume fluctuations due to pressure and temperature changes.
Under certain commercial agreements with Phillips 66, the value of any crude
oil, refined petroleum product and NGL volumetric gains and losses are
determined by reference to the monthly average reference price for the
applicable commodity. Any gains/losses under these provisions decrease or
increase, respectively, our operating and maintenance expenses in the period in
which they are realized. These contractual volumetric gain/loss provisions could
increase variability in our operating and maintenance expenses.

EBITDA, Adjusted EBITDA and Distributable Cash Flow We define EBITDA as net income (loss) plus net interest expense, income taxes, depreciation and amortization attributable to both the Partnership and our Predecessors.

Adjusted EBITDA is the EBITDA attributable to the Partnership after deducting the EBITDA attributable to our Predecessors, further adjusted for: • The proportional share of equity affiliates' net interest expense, income

taxes and depreciation and amortization.

• Transaction costs associated with acquisitions.

• Certain other noncash items, including expenses indemnified by Phillips 66.

Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional EBITDA, (ii) maintenance capital expenditures, (iii) net interest expense, (iv) income taxes paid and (v) preferred unit distributions, plus adjustments for deferred revenue impacts.


EBITDA, adjusted EBITDA, and distributable cash flow are not presentations made
in accordance with generally accepted accounting principles in the United States
(GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP
supplemental financial measures that management believes external users of our
consolidated financial statements, such as industry analysts, investors, lenders
and rating agencies, may find useful to assess:
•      Our operating performance as compared to other publicly traded
       partnerships in the midstream energy industry, without regard to
       historical cost basis or, in the case of EBITDA and adjusted EBITDA,
       financing methods.


•      The ability of our business to generate sufficient cash to support our
       decision to make distributions to our unitholders.

• Our ability to incur and service debt and fund capital expenditures.

• The viability of acquisitions and other capital expenditure projects and

       the returns on investment of various investment opportunities.



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The GAAP performance measure most directly comparable to EBITDA and adjusted
EBITDA is net income. The GAAP liquidity measure most directly comparable to
EBITDA and distributable cash flow is net cash provided by operating activities.
These non-GAAP financial measures should not be considered alternatives to GAAP
net income or net cash provided by operating activities. They have important
limitations as analytical tools because they exclude some items that affect net
income and net cash provided by operating activities. Additionally, because
EBITDA, adjusted EBITDA, and distributable cash flow may be defined differently
by other companies in our industry, our definition of these non-GAAP financial
measures may not be comparable to similarly titled measures of other companies,
thereby diminishing their utility.

Business Environment
Since we do not own any of the crude oil, refined petroleum products and NGL we
handle and do not engage in the trading of crude oil, refined petroleum products
and NGL, we have limited direct exposure to risks associated with fluctuating
commodity prices, although these risks indirectly influence our activities and
results of operations over the long term.

Our throughput volumes primarily depend on the volume of crude oil processed and
refined petroleum products produced at Phillips 66's owned or operated
refineries with which our assets are integrated. These volumes are primarily
dependent on Phillips 66's refining margins and maintenance schedules. Refining
margins depend on the price of crude oil or other feedstocks and the price of
refined petroleum products. These prices are affected by numerous factors beyond
our or Phillips 66's control, including the domestic and global supply of and
demand for crude oil and refined petroleum products. Throughput volumes of our
equity affiliates primarily depend on upstream drilling activities, refinery
performance and product supply and demand.

While we believe we have substantially mitigated our indirect exposure to
commodity price fluctuations through the minimum volume commitments in our
commercial agreements with Phillips 66 during the respective terms of those
agreements, our ability to execute our growth strategy will depend, in part, on
the availability of attractively priced crude oil in the areas served by our
crude oil pipelines and rail racks, demand for refined petroleum products in the
markets served by our refined petroleum product pipelines and terminals, and the
general demand for midstream services, including NGL transportation and
fractionation.



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RESULTS OF OPERATIONS

                                                               Millions of Dollars
Years Ended December 31                                     2019        2018        2017
Revenues and Other Income
Operating revenues-related parties                     $   1,097       1,012         894
Operating revenues-third parties                              29          33          40
Equity in earnings of affiliates                             535         439         223
Other income                                                   6           2          12
Total revenues and other income                            1,667       

1,486 1,169


Costs and Expenses
Operating and maintenance expenses                           405         354         321
Depreciation                                                 120         117         116
General and administrative expenses                           67          64          69
Taxes other than income taxes                                 39          35          33
Interest and debt expense                                    108         115         101
Other expenses                                                 2           1           1
Total costs and expenses                                     741         686         641
Income before income taxes                                   926         800         528
Income tax expense                                             3           4           4
Net income                                                   923         796         524
Less: Net income attributable to Predecessors                  -           -          63
Net income attributable to the Partnership                   923         

796 461 Less: Preferred unitholders' interest in net income attributable to the Partnership

                               37          37           9
Less: General partner's interest in net income
attributable to the Partnership                              140         

240 160 Limited partners' interest in net income attributable to the Partnership

                                     $     746

519 292


Net cash provided by operating activities              $   1,016         892         724

Adjusted EBITDA                                        $   1,268       1,137         754

Distributable cash flow                                $     989         854         572




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                                                            Year Ended December 31
                                                         2019            2018         2017
Wholly Owned Operating Data
Pipelines
Pipeline revenues (millions of dollars)           $       473             454          424
Pipeline volumes(1) (thousands of barrels daily)
Crude oil                                                 991           1,016          916
Refined petroleum products and NGL                        947             929          950
Total                                                   1,938           

1,945 1,866


Average pipeline revenue per barrel (dollars)     $      0.67

0.64 0.62

Terminals

Terminal revenues (millions of dollars)           $       167             157          152
Terminal throughput (thousands of barrels daily)
Crude oil(2)                                              470             462          421
Refined petroleum products                                804             780          767
Total                                                   1,274           1,242        1,188

Average terminaling revenue per barrel (dollars)  $      0.35

0.34 0.35


Storage, processing and other revenues (millions
of dollars)                                       $       486

434 358 Total operating revenues (millions of dollars) $ 1,126 1,045 934


Joint Venture Operating Data(3)
Crude oil, refined petroleum products and NGL
(thousands of barrels
  daily)                                                  760             652          472


(1) Represents the sum of volumes transported through each separately tariffed
pipeline segment.
(2) Bayway and Ferndale rail rack volumes included in crude oil terminals.
(3) Proportional share of total pipeline and terminal volumes of joint ventures
consistent with recognized equity in earnings of affiliates.



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The following tables present reconciliations of EBITDA and adjusted EBITDA to
net income, and EBITDA and distributable cash flow to net cash provided by
operating activities, the most directly comparable GAAP financial measures, for
each of the periods indicated.

                                                              Millions of Dollars
                                                             Year Ended December 31
                                                           2019          2018         2017
Reconciliation to Net Income Attributable to the
Partnership
Net income attributable to the Partnership          $       923           796          461
Plus:
Net income attributable to Predecessors                       -             -           63
Net income                                                  923           796          524
Plus:
Depreciation                                                120           117          116
Net interest expense                                        105           114           99
Income tax expense                                            3             4            4
EBITDA                                                    1,151         1,031          743
Plus:
Proportional share of equity affiliates' net
interest, taxes and depreciation and amortization           116           101           66
Expenses indemnified or prefunded by Phillips 66              1             1            8
Transaction costs associated with acquisitions                -             4            4

Less:

EBITDA attributable to Predecessors                           -             -           67
Adjusted EBITDA                                           1,268         1,137          754
Plus:
Deferred revenue impacts* †                                  (6 )          (6 )          6
Less:
Equity affiliate distributions less than
proportional EBITDA                                          56            64           29
Maintenance capital expenditures†                            74            62           50
Net interest expense                                        105           114          100
Preferred unit distributions                                 37            37            9
Income taxes paid                                             1             -            -
Distributable cash flow                             $       989           854          572

*Difference between cash receipts and revenue recognition. †Excludes Merey Sweeny capital reimbursements and turnaround impacts.

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                                                             Millions of Dollars
                                                            Year Ended December 31
                                                          2019         2018         2017
Reconciliation to Net Cash Provided by Operating
Activities
Net cash provided by operating activities           $    1,016          892          724
Plus:
Net interest expense                                       105          114           99
Income tax expense                                           3            4            4
Changes in working capital                                  34          (20 )        (30 )
Undistributed equity earnings                                3            5            1
Deferred revenues and other liabilities                     (5 )         42          (43 )
Other                                                       (5 )         (6 )        (12 )
EBITDA                                                   1,151        1,031          743
Plus:
Proportional share of equity affiliates' net
interest, taxes and depreciation and amortization          116          101 

66

Expenses indemnified or prefunded by Phillips 66             1            1            8
Transaction costs associated with acquisitions               -            4            4

Less:

EBITDA attributable to Predecessors                          -            -           67
Adjusted EBITDA                                          1,268        1,137          754
Plus:
Deferred revenue impacts*†                                  (6 )         (6 )          6
Less:
Equity affiliate distributions less than
proportional EBITDA                                         56           64 

29

Maintenance capital expenditures†                           74           62           50
Net interest expense                                       105          114          100
Preferred unit distributions                                37           37            9
Income taxes paid                                            1            -            -
Distributable cash flow                             $      989          854          572

*Difference between cash receipts and revenue recognition. †Excludes Merey Sweeny capital reimbursements and turnaround impacts.


Statement of Income Analysis

2019 vs. 2018

Operating revenues increased $81 million in 2019. The increase was primarily due
to the recognition of previously deferred revenues associated with fees charged
to Phillips 66 related to turnaround activity at Merey Sweeny LLC (Merey Sweeny)
in the first quarter of 2019, and higher volumes and rates.

Equity in earnings of affiliates increased $96 million, or 22%, in 2019, mainly
resulting from higher earnings from Dakota Access, LLC (Dakota Access) and
Energy Transfer Crude Oil Company, LLC (ETCO), together referred to as the
Bakken Pipeline and DCP Sand Hills Pipeline, LLC (Sand Hills), primarily due to
improved volumes.

Operating and maintenance expenses increased $51 million, or 14%, in 2019. The
increase was primarily due to turnaround activity at Merey Sweeny and integrity
and maintenance repairs.



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2018 vs. 2017

Operating revenues increased $111 million, or 12%, in 2018. The increase was primarily due to higher processing revenues at Merey Sweeny, and improved pipeline volumes and rates.


Equity in earnings of affiliates increased $216 million, or 97%, in 2018, mainly
resulting from a full year of earnings from the Bakken Pipeline, and higher
earnings from Sand Hills, Explorer Pipeline Company (Explorer), and Phillips 66
Partners Terminal LLC (Phillips 66 Partners Terminal), primarily due to improved
volumes.

Other income decreased $10 million in 2018. The decrease was primarily due to
the receipt of tax-related contractual make-whole payments in 2017 associated
with the transfer of a co-venturer's interests in Sand Hills and DCP Southern
Hills Pipeline, LLC (Southern Hills) to DCP Midstream, LP.

Operating and maintenance expenses increased $33 million, or 10%, in 2018. The increase was primarily due to higher operating expenses at Merey Sweeny and maintenance expenses for the Ponca Products System.


Interest and debt expense increased $14 million, or 14%, in 2018, due to higher
average debt principal balances as a result of the issuance of $650 million of
senior notes in October 2017. See Note 12-Debt, in the Notes to Consolidated
Financial Statements, for additional information.


CAPITAL RESOURCES AND LIQUIDITY
Significant Sources of Capital
Our sources of liquidity include cash generated from operations, distributions
from our equity affiliates, borrowings from related parties and under our
revolving credit facility, issuances of additional debt and equity securities,
and funding from joint venture partners. We believe that cash generated from
these sources will be sufficient to meet our short-term working capital
requirements, long-term capital expenditure requirements and our quarterly cash
distributions.

Operating Activities
During 2019, we generated $1,016 million in cash from operations, a 14%
improvement over cash from operations of $892 million in 2018. The improvement
was primarily driven by distributions from equity affiliates in 2019.

During 2018, cash provided by operating activities was $892 million, a 23%
improvement over cash from operations of $724 million in 2017. The improvement
was primarily driven by higher operating revenues and distributions from equity
affiliates, partially offset by decreased deferred revenue and increased
operating and maintenance expenses in 2018.

Equity Affiliate Operating Distributions
Our cash flows are also impacted by distribution decisions made by our equity
affiliates. Over the three years ended December 31, 2019, we received aggregate
distributions from our equity affiliates of $1,350 million. We cannot control
the amount or timing of future dividends from equity affiliates; therefore,
future dividend payments by these and other equity affiliates are not assured.

ATM Program
We have authorized an aggregate of $750 million under three $250 million
continuous offerings of common units, or at-the-market (ATM) programs. The first
two programs concluded in June 2018 and December 2019, respectively, leaving
$250 million available under the third program. For the year ended December 31,
2019, on a settlement-date basis, we issued an aggregate of 3,195,521 common
units under our ATM programs, generating net proceeds of $173 million. During
the year ended December 31, 2018, on a settlement-date basis, we issued an
aggregate of 2,532,096 common units under our ATM programs, generating net
proceeds of $128 million. During the year ended December 31, 2017, on a
settlement-date basis, we issued an aggregate of 3,372,716 common units under
our ATM programs, generating net proceeds of $173 million. Since inception in
June 2016 and through December 31, 2019, we issued an aggregate of 9,446,485
common units under our ATM programs, and generated net proceeds of $492 million,
after broker commissions of $5 million and other costs of $3 million. The net
proceeds from sales under the ATM programs are used for general partnership
purposes, which may include debt repayment, acquisitions, capital expenditures
and additions to working capital.

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Common Units
In October 2017, we completed a private placement of 6,304,204 common units
representing limited partner interests at a price of $47.59 per common unit, for
total proceeds of $295 million, net of underwriting discounts and commissions.
The net proceeds were used in part to fund the cash portion of the Bakken
Pipeline/Merey Sweeny Acquisition. See Note 4-Acquisitions, in the Notes to
Consolidated Financial Statements, for additional information.

Preferred Units
In October 2017, we completed the private placement of 13,819,791 perpetual
convertible preferred units (preferred units) representing limited partner
interests at a price of $54.27 per preferred unit. We received proceeds of $737
million from the offering, net of offering and transaction expenses. The net
proceeds were used in part to fund the cash portion of the Bakken Pipeline/Merey
Sweeny Acquisition.

The preferred units rank senior to all common units with respect to
distributions and rights upon liquidation. The holders of the preferred units
are entitled to receive cumulative quarterly distributions equal to $0.678375
per unit, beginning for the quarter ended December 31, 2017, with a prorated
amount from the date of issuance. Following the third anniversary of the
issuance of the preferred units, the holders of the preferred units will receive
as a quarterly distribution the greater of $0.678375 per unit or the amount of
per-unit distributions paid to common unitholders as if such preferred units had
converted into common units immediately prior to the record date.

The holders of the preferred units may convert their preferred units into common
units, on a one-for-one basis, at any time after the second anniversary of the
issuance date, in full or in part, subject to minimum conversion amounts and
conditions. After the third anniversary of the issuance date, we may convert the
preferred units into common units at any time, in whole or in part, subject to
certain minimum conversion amounts and conditions. See Note 15-Equity, in the
Notes to Consolidated Financial Statements, for additional information on the
preferred unit conversion features.

2019 Senior Notes
On September 6, 2019, we closed on a public offering of $900 million aggregate
principal amount of unsecured notes consisting of:

•      $300 million aggregate principal amount of 2.450% Senior Notes due
       December 15, 2024.



•      $600 million aggregate principal amount of 3.150% Senior Notes due
       December 15, 2029.



Interest on each series of senior notes is payable semi-annually in arrears on
June 15 and December 15 of each year, commencing on June 15, 2020. Total
proceeds received from the offering were $892 million, net of underwriting
discounts and commissions. Net proceeds from the Senior Notes offering were used
for general partnership purposes, including debt repayments. On September 13,
2019, we used a portion of the proceeds to repay the $400 million outstanding
principal balance of the senior unsecured term loan facility that was drawn
during the first half of 2019. On October 15, 2019, we used a portion of the
proceeds to repay the aggregate $300 million outstanding principal balance of
our 2.646% Senior Notes due February 2020.

Revolving Credit Facility
On July 30, 2019, we amended and restated our revolving credit agreement. The
agreement extended the termination date from October 3, 2021 to July 30, 2024.
No other material amendments were made to the agreement, and the overall
capacity remains at $750 million with an option to increase the overall capacity
to $1 billion, subject to certain conditions. We also have the option to extend
the Credit Agreement for two additional one-year terms after its July 30, 2024,
maturity date, subject to, among other things, the consent of the lenders
holding the majority of the commitments and of each lender extending its
commitment.

As of December 31, 2019, no amount had been directly drawn under our $750
million revolving credit facility; however, $1 million in letters of credit had
been issued that were supported by this facility. As of December 31, 2018, we
had an aggregate of $125 million borrowed and outstanding under the credit
facility.

Outstanding borrowings under the Credit Agreement bear interest, at our option,
at either: (a) the Eurodollar rate in effect from time to time plus the
applicable margin; or (b) the base rate (as described in the Credit Agreement)
plus the applicable margin. The pricing levels for the commitment fee and
interest-rate margins are determined based on our

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credit ratings in effect from time to time. Outstanding borrowings bearing
interest at the Eurodollar rate become due and payable on the revolving credit
facility's termination date. Outstanding borrowings bearing interest at the base
rate plus the applicable margin become due and payable on the earlier of the
revolving credit facility's termination date or the fourteenth business day
after such borrowings were made. We may at any time and from time to time prepay
outstanding borrowings under the Credit Agreement, in whole or in part, without
premium or penalty. The Credit Agreement requires that the Partnership's ratio
of total debt to EBITDA for the prior four fiscal quarters must be no greater
than 5.0:1.0 as of the last day of each fiscal quarter (and 5.5:1.0 during the
period following certain specified acquisitions).

Our revolving credit facility is subject to customary financial covenants and limitations. We are in compliance with all such financial covenants and limitations.


Term Loan Facility
On March 22, 2019, we entered into a senior unsecured term loan facility with a
borrowing capacity of $400 million due March 20, 2020. We borrowed an aggregate
amount of $400 million under the facility during the first half of 2019. The
proceeds were used for general partnership purposes, including repayment of
amounts borrowed under our $750 million revolving credit facility. The
outstanding principal balance of the senior unsecured term loan facility was
repaid in full in September 2019.

2017 Senior Notes
In October 2017, we closed on a notes offering (2017 Notes Offering) of $650
million aggregate principal amount of unsecured senior notes consisting of:

$500 million of 3.750% Senior Notes due March 1, 2028.

• An additional $150 million of our 4.680% Senior Notes due February 15, 2045.




Interest on the Senior Notes due 2028 is payable semiannually in arrears on
March 1 and September 1 of each year, commencing on March 1, 2018. The Senior
Notes due 2045 are an additional issuance of our Senior Notes due 2045, and
interest is payable semiannually in arrears on February 15 and August 15 of each
year. Total proceeds received from the 2017 Notes Offering were $643 million,
net of underwriting discounts. We utilized the net proceeds to repay the
remaining balances on the promissory notes and term loan assumed in the Bakken
Pipeline/Merey Sweeny Acquisition and for general partnership purposes.

Tax-Exempt Bonds
In connection with the Bakken Pipeline/Merey Sweeny Acquisition, we assumed four
$25 million tranches of tax-exempt bonds issued by the Brazos River Harbor
Navigation District. We repaid one tranche in 2018, with another maturing in
2020 and two in 2021.

The tranches accrue interest monthly based on a daily rate derived by the remarketing agent for the bonds. The interest rates are designed to represent the lowest rate acceptable by the tax-exempt, variable-rate bond market and approximate the tax-exempt bonds trading at par.


Senior Bonds
In May 2017 and prior to their maturity, we repaid Merey Sweeny senior bonds
assumed in the Bakken Pipeline/Merey Sweeny Acquisition with a carrying value of
$136 million on the repayment date, which resulted in an immaterial gain.

Because the Merey Sweeny tax-exempt bonds and senior bonds were held by entities
we acquired in common control transactions, prior period debt balances were
retrospectively presented as if we had held the bonds since their inception in
February 2017.

Transfers of Equity Interests
In December 2018, a third party exercised its option to acquire a 35% interest
in Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary. This
transfer did not qualify as a sale under GAAP because of certain restrictions
placed on the acquirer. The contributions received by Holdings LLC from the
third party to cover capital calls from Gray Oak Pipeline, LLC are presented as
a long-term obligation on our consolidated balance sheet and as financing cash
inflows on our consolidated statement of cash flows. After construction of the
Gray Oak Pipeline is fully completed,

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these restrictions expire, and the sale will be recognized under GAAP. We will
continue to control and consolidate Holdings LLC after sale recognition, and
therefore the third party's 35% interest will be recharacterized from a
long-term obligation to a noncontrolling interest on our consolidated balance
sheet at that time. Also at that time, the premium paid will be recharacterized
from a long-term obligation to a gain in our consolidated statement of income.
During 2019, the third party contributed an aggregate of $342 million into
Holdings LLC, and Holdings LLC used these contributions to fund its portion of
Gray Oak Pipeline LLC's cash calls.

In February 2019, Holdings LLC transferred a 10% interest in Gray Oak Pipeline,
LLC, to a third party that exercised a purchase option, for proceeds of $81
million. The proceeds received from this sale are reflected as an investing cash
inflow in the "Proceeds from sale of equity interest" line item on our
consolidated statement of cash flows.

See Note 6-Equity Investments and Loans, in the Notes to Consolidated Financial Statements, for additional information regarding these transactions.


Shelf Registration
We have a universal shelf registration statement on file with the U.S.
Securities and Exchange Commission (SEC) under which we, as a well-known
seasoned issuer, have the ability to issue and sell an indeterminate amount of
common units representing limited partner interests, preferred units
representing limited partner interests, and debt securities.


Off-Balance Sheet Arrangements
In March 2019, a wholly owned subsidiary of Dakota Access closed on an offering
of $2,500 million aggregate principal amount of unsecured senior notes.  The net
proceeds from the issuance of these notes were used to repay amounts outstanding
under existing credit facilities of Dakota Access and ETCO.  Dakota Access and
ETCO have guaranteed repayment of the notes.  In addition, we and our
co-venturers provided a Contingent Equity Contribution Undertaking (CECU) in
conjunction with the notes offering.  Under the CECU, if Dakota Access receives
an unfavorable court ruling related to certain disputed construction permits and
Dakota Access determines that an equity contribution trigger event has occurred,
the venturers may be severally required to make proportionate equity
contributions to Dakota Access and ETCO up to an aggregate maximum of
approximately $2,525 million. Our share of the maximum potential equity
contributions under the CECU is approximately $631 million.

In June 2019, Gray Oak Pipeline, LLC entered into a third-party term loan
facility with an initial borrowing capacity of $1,230 million to cover a portion
of the project cost for the Gray Oak Pipeline, inclusive of accrued interest.
Subsequently, the facility was increased in July 2019 to $1,317 million and
further increased in January 2020 to $1,379 million, inclusive of accrued
interest.  Borrowings under the facility are due on June 3, 2022. We and our
co-venturers provided a guarantee through an equity contribution agreement
requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the
total outstanding loan amount.  Under the agreement, our maximum potential
amount of future obligations is $583 million, plus any additional accrued
interest and associated fees, which would be required if the term loan facility
is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its
obligations thereunder.  At December 31, 2019, Gray Oak Pipeline, LLC had
borrowings of $1,170 million outstanding, and our 42.25% proportionate exposure
was $494 million.  The net proceeds from the term loan were used by Gray Oak
Pipeline, LLC for construction of the Gray Oak Pipeline and repayment of amounts
borrowed under a related party loan agreement that we and our co-venturers
executed in March 2019 and terminated upon the repayment by Gray Oak Pipeline,
LLC in June 2019.  Our total related party loan to and repayment received from
Gray Oak Pipeline, LLC was $95 million.




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Capital Requirements

Acquisitions

During 2018 and 2017, we completed several major acquisitions, including:

• The April 2018 Gray Oak Pipeline Project Acquisition, where we entered

into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its

100% interest in Holdings LLC, which, at that time, owned a 100% interest

in Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC is developing and

constructing the Gray Oak Pipeline which, upon completion, will transport

       crude oil from the Permian and Eagle Ford to destinations in Corpus
       Christi, Texas, and the Sweeny, Texas, area, including the Phillips 66
       Sweeny Refinery.


• The October 2017 Bakken Pipeline/Merey Sweeny Acquisition, consisting of a

25% interest in the Bakken Pipeline and a 100% interest in Merey Sweeny.




See Note 4-Acquisitions, Note 6-Equity Investments and Loans and Note 20-Cash
Flow Information, in the Notes to Consolidated Financial Statements, for
additional information on our acquisitions, including consideration paid and the
cash and noncash elements of the transactions.

Subsequent Acquisition
In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66
PDI to acquire its 50% interest in the Liberty Pipeline joint venture for
approximately $75 million.  The purchase price reflects the reimbursement of
project costs incurred by Phillips 66 prior to the effective date of the
transaction. We plan to fund the transaction through a combination of cash on
hand and our revolving credit facility.  The transaction is expected to close on
March 2, 2020.

Liberty Pipeline LLC is developing and constructing the Liberty Pipeline system
which, upon completion, will transport crude oil from the Rockies and Bakken
production areas to Cushing, Oklahoma.  The throughput capacity on the 24 inch
pipeline is expected to be 400,000 BPD.  The pipeline is supported by long-term
shipper commitments, and service is expected in the first half of 2021.  The
total cost of the pipeline is expected to be approximately $1.6 billion, on a
gross basis, or $800 million net to the Partnership.

Capital Expenditures and Investments
Our operations are capital intensive and require investments to expand, upgrade,
maintain or enhance existing operations and to meet environmental and
operational requirements of our wholly owned and joint venture entities. Our
capital requirements consist of maintenance and expansion capital expenditures,
as well as contributions to our joint ventures. Maintenance capital expenditures
are those made to replace partially or fully depreciated assets, to maintain the
existing operating capacity of our assets and to extend their useful lives, or
to maintain existing system volumes and related cash flows. In contrast,
expansion capital expenditures are those made to expand and upgrade our systems
and facilities and to construct or acquire new systems or facilities to grow our
business, including contributions to joint ventures that are using the
contributed funds for such purposes.

Our capital expenditures and investments represent the total spending for our
capital requirements. Our adjusted capital spending is a non-GAAP financial
measure that demonstrates our net share of capital spending, and reflects an
adjustment for the portion of consolidated capital spending funded by certain
joint venture partners. Additionally, the disaggregation of adjusted capital
spending between expansion and maintenance is not a distinction recognized under
GAAP. We disaggregate adjusted capital spending because our partnership
agreement requires that we treat expansion and maintenance capital differently
for certain surplus determinations. Further, we generally fund expansion capital
spending with both operating and financing cash flows and fund maintenance
capital spending with operating cash flows.


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Our capital expenditures and investments for the years ended December 31, 2019,
2018 and 2017 were:

                                                         Millions of Dollars
                                                         2019     2018    2017
Capital expenditures and investments
Capital expenditures and investments                 $  1,082      776     

434

Capital expenditures attributable to Predecessors           -        -     (82 )
Capital expenditures and investments funded by joint
  venture partners*                                      (423 )      -       -
Adjusted capital spending                                 659      776     352

Expansion                                            $    579      710     382
Maintenance                                                80       66      52

*See Note 6-Equity Investments and Loans, in the Notes to Consolidated Financial Statements, for additional information.

Capital expenditures attributable to Predecessors for the three-year period ended December 31, 2019, reflect contributions to Dakota Access and ETCO to fund construction, completion and startup of the Bakken Pipeline.

Our capital expenditures and investments attributable to the Partnership for the three-year period ended December 31, 2019, included:

• Contributions to Gray Oak Pipeline, LLC to progress construction of the

pipeline system, which will transport crude oil from the Permian and Eagle

Ford to Texas Gulf Coast destinations that include Corpus Christi, the

Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access

       to the Houston market.



•      Contributions to Bayou Bridge Pipeline, LLC (Bayou Bridge) for the
       construction of a pipeline from Nederland, Texas, to Lake Charles,
       Louisiana, and a pipeline segment from Lake Charles to St. James,
       Louisiana.



•      Completion of the construction of our new isomerization unit at the
       Phillips 66 Lake Charles Refinery.


• Contributions to Sand Hills to increase capacity on its NGL system.

• Construction activities related to increasing storage capacity at Clemens

       Caverns.


• Contributions to Dakota Access and ETCO for post-construction spending

       related to Bakken Pipeline.


• Construction activities related to a new ethane pipeline from the Clemens

Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi

       (C2G Pipeline).


• Contributions to South Texas Gateway Terminal for construction activities

       related to the marine export terminal that will connect to the Gray Oak
       Pipeline in Corpus Christi, Texas.


• Construction activities related to increasing capacity on the Sweeny to

Pasadena refined petroleum products pipeline.

• Spending associated with other return, reliability and maintenance projects.





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2020 Budget
Our 2020 capital program is $962 million, and $95 million of that amount will be
funded by certain joint venture partners. Of the remaining $867 million
budgeted, $734 million will be invested in expansion projects, including the C2G
Pipeline, Gray Oak Pipeline, the South Texas Gateway Terminal and the Bakken
Pipeline. Our estimated maintenance capital spending of $133 million will be
funded primarily with cash from operations, while expansion capital spending
will be funded with a combination of cash from operations, borrowings under our
revolving credit facility or other issuances of debt, and selective use of our
ATM program.

Restructuring Transaction
On August 1, 2019, we closed on the transactions contemplated by the Partnership
Interests Restructuring Agreement, dated July 24, 2019, entered into with our
General Partner. Pursuant to this agreement, all of the outstanding IDRs held by
our General Partner were eliminated and its approximately 2% general partner
interest in us was converted into a non-economic general partner interest; both
in exchange for an aggregate of 101 million common units issued to Phillips 66
PDI. Because these transactions were between entities under common control, the
common units issued to Phillips 66 PDI were assigned no value; rather, our
General Partner's negative equity balance of $1.4 billion at August 1, 2019, was
transferred to Phillips 66's limited partner equity account.

Cash Distributions
On January 21, 2020, the Board of Directors of our General Partner declared a
quarterly cash distribution of $0.875 per common unit which, excluding
distributions to holders of our preferred units, resulted in a total
distribution of $200 million attributable to the fourth quarter of 2019. This
distribution was paid February 13, 2020, to unitholders of record as of
January 31, 2020.

The following table summarizes our quarterly cash distributions for 2019 and 2018 to our common unitholders and our General Partner:

                                      Quarterly Cash
                                        Distribution         Total Quarterly Cash
                                    Per Common Unit*                 Distribution
      Quarter Ended                        (Dollars)        (Millions of Dollars)     Date of Distribution
December 31, 2019                  $           0.875             $            200        February 13, 2020
September 30, 2019                             0.865                          197        November 13, 2019
June 30, 2019                                  0.855                          177          August 13, 2019
March 31, 2019                                 0.845                          174             May 14, 2019
December 31, 2018                              0.835                          171        February 13, 2019
September 30, 2018                             0.792                          160        November 13, 2018
June 30, 2018                                  0.752                          148          August 13, 2018
March 31, 2018                                 0.714                          139           April 30, 2018


*Cash distributions declared attributable to the indicated periods.



The holders of the preferred units are entitled to receive cumulative quarterly
distributions equal to $0.678375 per preferred unit commencing for the quarter
ended December 31, 2017, with a prorated amount from the date of issuance.
Preferred unitholders received $9 million of distributions attributable to the
fourth quarter of 2019.



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Contractual Obligations
The following table summarizes our aggregate contractual obligations as of
December 31, 2019:

                                           Millions of Dollars
                                         Payments Due by Period
                                         Up to    Years    Years      After
                               Total    1 Year      2-3      4-5    5 Years

Debt obligations (a)         $ 3,550        25       50      300      3,175
Interest on debt               1,974       134      265      265      1,310

Operating lease obligations 105 3 6 6 90 Purchase obligations (b) 172 154 9 5 4 Other long-term liabilities: Asset retirement obligations 11 - - - 11 Accrued environmental costs 3 1 - - 2 Total

                        $ 5,815       317      330      576      4,592




(a) See Note 12-Debt, in the Notes to Consolidated Financial Statements, for

    additional information.



(b) Represents any agreement to purchase goods or services that is enforceable

    and legally binding and that specifies all significant terms. Includes
    accounts payable reflected on our consolidated balance sheet.



In addition to the contractual obligations included in the table above, we are
party to an amended omnibus agreement with Phillips 66. The amended omnibus
agreement contractually requires us to pay a monthly operational and
administrative support fee in the amount of $8 million to Phillips 66 for
certain administrative and operational support services provided to us. The
amended omnibus agreement generally remains in full force and effect so long as
Phillips 66 controls our General Partner. Due to the indefinite nature of the
agreement's term, the fixed fee is not included in the contractual obligations
table above.

Our preferred units are contractually entitled to receive cumulative quarterly
distributions. As of December 31, 2019, distributions to our preferred
unitholders are $37 million on an annual basis. However, subject to certain
conditions, we or the holders of the preferred units may convert the preferred
units into common units at certain anniversary dates after the issuance date.
Due to the uncertain timing of any potential conversion, distributions related
to the preferred units were not included in the contractual obligations table
above.


Contingencies
From time to time, lawsuits involving a variety of claims that arise in the
ordinary course of business are filed against us. We also may be required to
remove or mitigate the effects on the environment of the placement, storage,
disposal or release of certain chemical, mineral and petroleum substances at
various sites. We regularly assess the need for accounting recognition or
disclosure of these contingencies. In the case of all known contingencies (other
than those related to income taxes), we accrue a liability when the loss is
probable and the amount is reasonably estimable. If a range of amounts can be
reasonably estimated and no amount within the range is a better estimate than
any other amount, then the minimum of the range is accrued. We do not reduce
these liabilities for potential insurance or third-party recoveries. If
applicable, we accrue receivables for probable insurance or other third-party
recoveries. In the case of income-tax-related contingencies, we use a cumulative
probability-weighted loss accrual in cases where sustaining a tax position is
less than certain.


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Based on currently available information, we believe it is remote that future
costs related to known contingent liability exposures will exceed current
accruals by an amount that would have a material adverse impact on our
consolidated financial statements. As we learn new facts concerning
contingencies, we reassess our position both with respect to accrued liabilities
and other potential exposures. Estimates particularly sensitive to future
changes include any contingent liabilities recorded for environmental
remediation, tax and legal matters. Estimated future environmental remediation
costs are subject to change due to such factors as the uncertain magnitude of
cleanup costs, the unknown time and extent of such remedial actions that may be
required, and the determination of our liability in proportion to that of other
potentially responsible parties. Estimated future costs related to tax and legal
matters are subject to change as events evolve and as additional information
becomes available during the administrative and litigation processes.

Regulatory Matters
Our interstate common carrier crude oil and refined petroleum products pipeline
operations are subject to rate regulation by the Federal Energy Regulatory
Commission under the Interstate Commerce Act and Energy Policy Act of 1992, and
certain of our pipeline systems providing intrastate service are subject to rate
regulation by applicable state authorities under their respective laws and
regulations. Our pipeline, rail rack and terminal operations are also subject to
safety regulations adopted by the Department of Transportation, as well as to
state regulations.

Legal and Tax Matters
Under our amended omnibus agreement, Phillips 66 provides certain services for
our benefit, including legal and tax support services, and we pay an operational
and administrative support fee for these services. Phillips 66's legal and tax
organizations apply their knowledge, experience and professional judgment to the
specific characteristics of our cases and uncertain tax positions. Phillips 66's
legal organization employs a litigation management process to manage and monitor
the legal proceedings against us. The process facilitates the early evaluation
and quantification of potential exposures in individual cases and enables
tracking of those cases that have been scheduled for trial and/or mediation.
Based on professional judgment and experience in using these litigation
management tools and available information about current developments in all our
cases, Phillips 66's legal organization regularly assesses the adequacy of
current accruals and recommends if adjustment of existing accruals, or
establishment of new accruals, is required. As of December 31, 2019 and 2018, we
did not have any material accrued contingent liabilities associated with
litigation matters.

Environmental

We are subject to extensive federal, state and local environmental laws and
regulations. These requirements, which frequently change, regulate the discharge
of materials into the environment or otherwise relate to protection of the
environment. Compliance with these laws and regulations may require us to
remediate environmental damage from any discharge of petroleum or chemical
substances from our facilities or require us to install additional pollution
control equipment at or on our facilities. Our failure to comply with these or
any other environmental or safety-related regulations could result in the
assessment of administrative, civil, or criminal penalties, the imposition of
investigatory and remedial liabilities, and the issuance of governmental orders
that may subject us to additional operational constraints. Future expenditures
may be required to comply with the Federal Clean Air Act and other federal,
state and local requirements in respect of our various sites, including our
pipelines and storage assets. The impact of legislative and regulatory
developments, if enacted or adopted, could result in increased compliance costs
and additional operating restrictions on our business, each of which could have
an adverse impact on our financial position, results of operations and
liquidity.

As with all costs, if these expenditures are not ultimately recovered in the
tariffs and other fees we receive for our services, our operating results will
be adversely affected. We believe that substantially all similarly situated
parties and holders of comparable assets must comply with similar environmental
laws and regulations. However, the specific impact on each may vary depending on
a number of factors, including, but not limited to, the age and location of its
operating facilities.

We accrue for environmental remediation activities when the responsibility to
remediate is probable and the amount of associated costs can be reasonably
estimated. As environmental remediation matters proceed toward ultimate
resolution or as additional remediation obligations arise, charges in excess of
those previously accrued may be required. New or expanded environmental
requirements, which could increase our environmental costs, may arise in the
future. We believe we are in substantial compliance with all legal obligations
regarding the environment and have established the environmental accruals that
are currently required; however, it is not possible to predict all of the
ultimate costs of

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compliance, including remediation costs that may be incurred and penalties that
may be imposed, because not all of the costs are fixed or presently determinable
(even under existing legislation) and the costs may be affected by future
legislation or regulations.

Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various
agreements under which we acquired assets from Phillips 66, Phillips 66 will
indemnify us, or assume responsibility, for certain environmental liabilities,
tax liabilities, litigation and any other liabilities attributable to the
ownership or operation of the assets contributed to us and that arose prior to
the effective date of each acquisition. These indemnifications and exclusions
from liability have, in some cases, time limits and deductibles. When Phillips
66 performs under any of these indemnifications or exclusions from liability, we
recognize non-cash expenses and associated non-cash capital contributions from
our General Partner, as these are considered liabilities paid for by a principal
unitholder.


CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to select appropriate accounting policies and to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses.


See Note 2-Summary of Significant Accounting Policies, in the Notes to
Consolidated Financial Statements, for descriptions of our significant
accounting policies. Certain of these accounting policies involve judgments and
uncertainties to such an extent that there is a reasonable likelihood that
materially different amounts would have been reported under different
conditions, or if different assumptions had been used. The following discussions
of critical accounting estimates, along with the discussion of contingencies in
this report, address all important accounting areas where the nature of
accounting estimates or assumptions could be material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or
the susceptibility of such matters to change.

Depreciation

We calculate depreciation expense using the straight-line method over the
estimated useful lives of our properties, plants and equipment (PP&E), currently
ranging from 3 years to 45 years. Changes in the estimated useful lives of our
PP&E could have a material effect on our results of operations.

Impairments

Long-lived assets used in operations are assessed for impairment whenever
changes in facts and circumstances indicate the carrying value of an asset group
may not be recoverable. If the sum of the undiscounted expected future pretax
cash flows of an asset group is less than the carrying value, including
applicable liabilities, the carrying value is written down to estimated fair
value. Individual assets are grouped for impairment purposes based on a
judgmental assessment of the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other assets, generally
at a pipeline system, terminal, processing or fractionation system level.
Because there usually is a lack of quoted market prices for long-lived assets,
the fair value of impaired assets is typically determined using one or more of
the following methods: present value of expected future cash flows using
discount rates and other assumptions believed to be consistent with those used
by principal market participants; estimated replacement cost; a market multiple
of earnings for similar assets; or historical market transactions of similar
assets, adjusted using principal market participant assumptions when necessary.
The expected future cash flows used for impairment reviews and related fair
value calculations are based on judgmental assessments of future volumes,
commodity prices, operating costs, margins, discount rates and capital project
decisions, considering all available information at the date of review.

Investments in nonconsolidated entities accounted for under the equity method
are reviewed for impairment when there is evidence of a loss in value. Such
evidence of a loss in value might include our inability to recover the carrying
amount, the lack of sustained earnings capacity which would justify the current
investment amount, or a current fair value less than the investment's carrying
amount. When it is determined such a loss in value is other than temporary, an
impairment charge is recognized for the difference between the investment's
carrying value and its estimated fair value. When determining whether a decline
in value is other than temporary, management considers factors such as the
length of time and extent of the decline, the investee's financial condition and
near-term prospects, and our ability and intention to retain our investment for
a period that will be sufficient to allow for any anticipated recovery in the
market value of the

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investment. When quoted market prices are not available, the fair value is
usually based on the present value of expected future cash flows using discount
rates and other assumptions believed to be consistent with those used by
principal market participants and a market analysis of comparable assets, if
appropriate. Different assumptions could affect the timing and the amount of an
impairment of an investment in any period.

Asset Retirement Obligations
Under various contracts, permits and regulations, we have legal obligations to
remove tangible equipment and restore the land at the end of operations at
certain operational sites. Our largest asset removal obligations involve the
abandonment or removal of pipelines. Fair values of legal obligations to abandon
or remove long-lived assets are recorded in the period in which the obligation
arises. Estimating the timing and cost of future asset removals is difficult and
involves judgment in determining the estimated asset removal obligation. Most of
these removal obligations are many years, or decades, in the future and the
contracts and regulations often have vague descriptions of what removal
practices and criteria must be met when the removal event actually occurs. Asset
removal technologies and costs, regulatory and other compliance considerations,
expenditure timing, and other inputs into valuation of the obligation, including
discount and inflation rates, are also subject to change.

Goodwill

At December 31, 2019, we had $185 million of goodwill recorded in conjunction
with past business combinations. The majority of our goodwill is related to
acquisitions from Phillips 66. In these common control transactions, the net
assets acquired are recorded at Phillips 66's historical carrying value,
including any associated goodwill. Goodwill is not amortized. Instead, goodwill
is subject to at least annual tests for impairment at a reporting unit level. A
reporting unit is an operating segment or a component that is one level below an
operating segment and they are determined primarily based on the manner in which
the business is managed. We have one reporting unit with a goodwill balance.

We perform our annual goodwill impairment test using a qualitative assessment
and a quantitative assessment, if one is deemed necessary. As part of our
qualitative assessment, we evaluate relevant events and circumstances that could
affect the fair value of our reporting unit, including macroeconomic conditions,
overall industry and market considerations and regulatory changes, as well as
partnership-specific market metrics, performance and events. The evaluation of
partnership-specific events and circumstances includes evaluating changes in our
unit price and cost of capital, actual and forecasted financial performance, as
well as the effect of significant asset dispositions.

If our qualitative assessment indicates it is likely the fair value of our
reporting unit has declined below its carrying value (including goodwill), or if
we elect not to perform a qualitative assessment, a quantitative assessment is
performed. When a quantitative assessment is performed, management applies
judgment in determining the estimated fair value of our reporting unit because a
quoted market price for this reporting unit is not available. Management uses
available information to make this fair value determination, including estimated
cash flows, cost of capital, observed market earnings multiples of comparable
companies and partnerships, our common unit price and associated total
partnership market capitalization.

We completed our annual qualitative impairment test as of October 1, 2019, and
concluded that the fair value of our reporting unit continued to exceed its
respective carrying value (including goodwill) by a significant percentage. A
decline in the estimated fair value of our reporting unit in the future could
result in an impairment. As such, we continue to monitor for indicators of
impairment until our next annual impairment test is performed.


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